EU offers 11-nation financial transaction tax with global reach

The European Union proposed a tax on financial transactions that could be collected worldwide as soon as the start of next year by the 11 nations that have so far signed up to participate.

The proposal, which marks a new stage in the EU’s efforts to raise revenue from the financial industry, came under immediate fire from banking groups. The EU plan would harm the German economy as a whole, eight lobby groups that represent industries ranging from the commercial country’s banks to skilled tradesmen said in a joint statement today.

The EU plan invokes “residence” and “issuance” ties to firms in participating countries, in a bid to prevent traders from escaping the levy by trading outside the tax’s zone, according to the proposal unveiled by EU Tax Commissioner Algirdas Semeta today in Brussels. To escape the proposed tax entirely, firms in other nations would have to entirely cease financial-services business with the 11 nations involved, according to the EU.

With the proposal, the EU is trying to curb what it sees as a “patchwork” of local levies. Like a prior, failed proposal for all 27 EU nations, today’s plan would set a rate of 0.1% for stock and bond trades and 0.01% on derivatives trades.

The EU estimates the arrangement could raise 30 billion euros ($40 billion) to 35 billion euros per year. To become law, the proposal has to be approved by the nations that agree to participate. They now comprise Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia. All 27 EU nations can sit in on the talks and have the option to join.

Exclusions

The proposals exclude certain types of trading from the scope of the tax: Day-to-day transactions by individuals and non-financial firms; primary offerings of stocks and bonds; and trades with central banks, the European Stability Mechanism and other official institutions. It also excludes primary market trades in units of collective investment funds along with certain restructuring operations.

While primary market government-bond sales would be exempted from the proposed tax, secondary market trading would be covered in order to prevent market distortions among financial products, Semeta said. Repurchase agreements would be included, though they would be taxed differently from trades with an outright buyer and seller.